Deals

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Sometimes the best thing you can do is walk away.

Skyworks, a $15.5 billion chip manufacturer, said late Monday that it was withdrawing its offer for PMC-Sierra, ceding the company to rival Microsemi after a monthlong bidding war. PMC-Sierra agreed on Tuesday to sell itself to Microsemi for a cash-and-stock bid worth about $12 a share, or $2.5 billion.

Going beyond this latest price wouldn't be prudent for Skyworks, and might inspire sticker shock from its shareholders (as it is, Skyworks shares climbed 2 percent in early trading, a sign investors applaud the stand-down). The implied premium and Ebitda multiple for PMC-Sierra already ranked near the top for big chipmaker deals. Even with debt still cheap, that's a stretch for a company that is essentially not going to grow revenue at all this year.

Getting Pricey
Microsemi is offering a roughly 90 percent premium to PMC-Sierra's unaffected average price.
Source: Bloomberg

Microsemi may have more reason to go the distance because it's the better strategic fit. PMC's chips for data storage and wireless infrastructure will complement Microsemi's existing communications portfolio, according to Woo Jin Ho of Bloomberg Intelligence.

Chipping Away
Buyers have announced almost $90 billion in semiconductor takeovers this year.
Source: Bloomberg

Indeed, Microsemi is projecting more cost savings -- $100 million annually versus Skyworks' $75 million. Despite its lofty bid, a deal still looks accretive for Microsemi, according to data compiled by Bloomberg. The math doesn't look as good for Skyworks, and the numbers would get even tighter if it were to start tacking on more dollars to its latest bid of $11.60 in cash.

PMC-Sierra is an attractive asset but at a certain point, it's just not worth it. Skyworks can now take its $88.5 million breakup fee and go find a new target. Even after a record $90 billion in semiconductor deals so far this year, there are still plenty of acquisition opportunities out there -- and quite possibly at a cheaper price. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net